MTA invests carefully and ethically

The Methodist Trust Association (MTA) was formed by the Conference of the Methodist Church of New Zealand in 1978 to receive funds from the Church for commercial investment. MTA is required to provide a market rate of return on the funds invested as well as ensuring the investments are secure and meet the Church’s guidelines for socially responsible investment.

The MTA has come to provide a significant service to the life of the Methodist Church of New Zealand. The MTA currently provides stewardship and investment management for over $98 million on behalf of the Church.

MTA executive officer Greg Wright says while annual and quarterly returns to depositors are important, the security of the Church’s invested capital is of paramount importance.

“The Association protects the capital base by investing in a range of financially sound organisations and by using intermediaries of proven skill and experience. This means individual parishes and groups can invest the Church’s funds with confidence.”

Greg says the MTA considers all investments in terms of the guidelines for socially responsible investment adopted by Conference 1996.

“We are comfortable all direct investments are in accordance with those guidelines. In some cases funds placed in listed investment vehicles or with specialist managers may be invested in ways MTA wouldn’t make directly. We believe such exposure is very limited and is insufficient to end such placements.”

The MTA operates four separate funds:Income A is for funds deposited for up to 12 months.Income B is for funds deposited for more than a year.Growth & Income is for funds invested for two years where both regular income and exposure to equity markets is required.Equity Fund is for longer term investment where regular income is not required and the aim is to build up capital.

Income fundsGreg says the two income funds have produced consistent returns throughout the year. Income Fund A averaged just under 6.75% for the year and the Income Fund B 6.1% for the year. These returns are consistent with the 90 day bill rate and 10 year bond rate which are the benchmarks for Income Fund distributions.

The Income Funds invest only in New Zealand domiciled fixed interest investments with all rated investments having a Standard and Poors or Moody’s rating of BBB or better. The MTA restricts the funds invested with any one issuer and further controls the amount invested in any particular issue. This maintains both security and liquidity.

Growth & Income FundThe Growth & Income Fund returned a steady 5.6% average income return over the year to June 2005.

The Growth & Income Fund’s aim to provide both income and capital gain means it invests in a mix of fixed interests and capital assets. The capital assets allocation includes property and a portfolio of shares in New Zealand and Australian companies. Some funds are invested further afield using specialist managers.

“We have diversified the Growth & Income Fund’s investment portfolio over the last three years. We have sold several properties and reinvested funds in other asset classes,” Greg says.

“Investment in capital markets carries risk. Markets can go down in value and market changes can be exacerbated either positively or negatively by currency movements. The Growth & Income fund can expect negative returns from time to time and depositors need to consider this possibility.”

Revaluation of the Growth & Income Fund’s equity investments on 30 June 2005 increased the value attributable to depositors by $4,294,473. This was an 8.61% increase in value for the year and represents a 14% average return to depositors over 12 months. MTA considers this to be a good result and notes it is in line with the results achieved by the NZ Superannuation Fund (the ‘Cullen Fund’).

Compared to the benchmark survey of Superannuation Funds, the Growth & Income Fund has provided satisfactory returns over the one, three and five year periods.

Equity FundThe Equity Fund is a recent development for the MTA. It is a pure New Zealand share market fund with all income added back into the Fund. The Fund is divided into issued units whose value is determined at the beginning of each month.

Greg says the Equity Fund had a spectacularly good year and returned 27.5% compared to the NZSX50 index growth for the year of 20%.

“Investment in this fund is suited to groups looking to develop a capital base over time where income is not important and the length of investment is sufficient to take into account high volatility such focussed funds experience.”

The Equity Fund began in June 2002 and by 30 June 2005 the original $1 units were valued at $1.66 a return of 66%.

Clearly past performance cannot be an indicator of future performance and as the New Zealand economy cools, so the returns from the New Zealand share market and accordingly the Equity Fund may be expected to reduce. Nevertheless, long term research shows investment in a soundly diversified portfolio of shares provides superior returns compared to most other investment classes.